Question

Problem 18-1A Contribution margin income statement and contribution margin ratio LO A1 The following costs result from the production and sale of 4,650 drum sets manufactured by Tight Drums Company for the year ended December 31, 2019. The drum sets sell for $315 each. The company has a 30% income tax rate. $ 139,500 101.750 181,350 130,200 Variable production costs Plastic for casing Wages of assembly workers Drum Stands Variable selling costs Sales Comissions Fixed manufacturing costs Taxes on factory Factory maintenance Factory machinery depreciation Fixed selling and administrative costs Lease of equipment for sales staff Accounting staff salaries Administrative management salaries 3.500 17.00 77,000 17.000 67,000 147.000 Required: 1. Prepare a contribution margin income statement for the year 2. Compute its contribution margin per unit and its contribution margin ratio 3. For each dollar of sales, how much is left to cover foxed costs and contribute to operating income? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare a contribution margin income statement for the year.

Answer 1

$0 TIGHT DRUMS COMPANY Contribution Margin Income Statement For Year Ended December 31, 2019 Sales revenue $1,464,750 [4650 units x $315] Variable costs: Plastic for casting $139,500 Wages for assembly workers $441,750 Drum stands $181,350 Sales commissions $130,200 Leave this line blank Total variable costs $892,800 Contribution margin $571,950 (Sales Revenue - Total variable costs] Fixed costs: Taxes on factory $8,500 Factory maintenance $17,000 Factory machinery depreciation $77,000 Lease of equipment for sales staff $17,000 Accounting staff salaries $67,000 Admin. management salaries $147,000 Leave this line blank Total fixed costs $333,500 Net operating income $238,450 [Contribution margin - Total fixed costs] $0

TIGHT DRUMS COMPANY Contribution Margin Income Statement (partial) For Year Ended December 31, 2019 Total Per Unit Sales revenue $1,464,750 $315 [Per Unit = $1464750 / 4650 units] Variable costs: Plastic for casting $139,500 $30 [Per Unit = $139500 / 4650 units] Wages for assembly workers $441,750 $95 [Per Unit = $441750 / 4650 units] Drum stands $181,350 $39 [Per Unit = $181350 / 4650 units] Sales commissions $130,200 $28 [Per Unit = $130200 / 4650 units] Leave this line blank $0 Total variable costs $892,800 $192 [Per Unit = $892800 / 4650 units] Contribution margin $571,950 $123 [Per Unit = $571950 / 4650 units] SO Contribution Margin Ratio Sales revenue $1,464,750 Variable costs $892,800 Contribution margin $571,950 100% ($1464750 / $1464750 --> Percent of sales] 61% ($892800 / $1464750 --> Percent of sales] 39% ($571950 / $1464750 --> Percent of sales] 3) For each dollar of sales, amount left to cover fixed costs and contribute to operating income is $0.39 (Contribution margin ratio of 39% implies that $0.39 of each dollar of sales is left to cover fixed costs and contribute to op. income)